11.5 Government Contracts

• Library: Contract Law in Virginia (Virginia CLE) (2019 Ed.)

11.5 GOVERNMENT CONTRACTS

11.501 Introduction. Contracting with federal, state, or local government—either directly, or indirectly through subcontracts—is a vital part of commerce in Virginia. Federal contracts alone account for about $100 billion spent for goods and services in Virginia annually, and as of 2015, state contracts accounted for another $6.2 billion. ⁸⁹⁵ In addition, the Commonwealth and other Virginia public bodies, such as counties, cities, and towns, spend more than $29 billion annually on maintenance and operations. ⁸⁹⁶ Thus, a Virginia attorney with clients engaged in commerce needs to know some fundamentals concerning government contracting as well as some sources of additional information.

The most basic fundamental is that government contract law is unique. While some common-law and UCC principles apply to government contracts, these principles are often supplanted by statute, regulation, and case law. Further, the policies implicated by government contracting often are different from those implicated by contracts among private parties. For example, fair and equal treatment of vendors, ethical conduct by government employees, advancement of various socioeconomic policies, and protection of the public treasury are extremely important considerations that impact legal issues in government contracts but that typically are not relevant in private contracts. As a result, government contracts differ from private sector

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contracts in how contracts are solicited and formed, how decisions are made concerning who may compete, how contract award decisions may be protested, what contract provisions are typically used, how claims are made, what tribunals hear protests and claims, and what the consequences are of a failure to follow the rules. Indeed, what might only be a breach of contract in the private sector could be a serious crime when a federal government contract is involved. To practice effectively in this area, attorneys must understand the unique aspects of government contract law.

11.502 Federal Government Contracting.

A. In General. A comprehensive discussion of federal government contract law is simply beyond the scope of this book. The law is so complex and specialized that even certain aspects of it are specialties in their own right. Also, the law is extensive and constantly changing. Multi-volume treatises and services exist on federal contract law, and they are updated regularly. Accordingly, this discussion deals with basic concepts, identifies common issues that a Virginia practitioner may encounter, and points the practitioner to more comprehensive references.

Attorneys should bear in mind several caveats when using this reference for a federal government contract issue. First, federal contract law is highly complex, technical, and subject to constant change. As a result, federal contract law poses many traps for the unwary. Second, in matters of federal government contract formation, especially bid protests, time is of the essence. Third, the federal government has very detailed ethics rules and certification requirements, the violation of which can result in severe consequences, both civil and criminal. Accordingly, what might simply be a breach of contract issue among private parties may for a federal government contractor involve not only contractual claims and disputes but also statutory civil liability, suspension and debarment from further government contract work, and even criminal liability. Fourth, bid protests and federal contract claims involve fairly complex jurisdictional and procedural issues. Given these potential pitfalls, a lawyer whose practice does not concentrate on federal contract law should consider associating with or referring the matter to someone who regularly practices in this area.

B. Statutory and Regulatory Authority. In general and simplified terms, the two primary statutory sources of authority for procurement by the federal executive departments are the Armed Services Procurement

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Act of 1947 (ASPA) ⁸⁹⁷ (applicable to the Department of Defense, the Coast Guard, and NASA) and the Federal Property and Administrative Services Act of 1949 ⁸⁹⁸ (applicable to most executive departments and agencies other than those covered by ASPA). Other legislation has amended these acts or otherwise significantly affected federal procurement, including (i) the Competition in Contracting Act of 1984; ⁸⁹⁹ (ii) the Federal Acquisition Streamlining Act of 1994; ⁹⁰⁰ (iii) the Clinger-Cohen Act of 1996; ⁹⁰¹ and (iv) the Office of Federal Procurement Policy Act. ⁹⁰²

Pursuant to 41 U.S.C. § 405, the Office of Federal Procurement Policy and the various agencies developed the Federal Acquisition Regulations System in 1984. ⁹⁰³ This system is purportedly the "single system of simplified Government-wide procurement regulations" to be followed by the executive agencies. ⁹⁰⁴ The system consists of the Federal Acquisition Regulation (FAR) and supplemental regulations issued by various agencies. The FAR and its various agency supplements are codified in title 48 of the Code of Federal Regulations (CFR). ⁹⁰⁵

The FAR is detailed and extensive. It incorporates and implements statutory requirements for federal procurement. It contains detailed rules

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and procedures regarding how various procurement activities must be conducted, including numerous contract clauses that must be used in various procurements. The FAR is essentially a "cookbook" for use by those involved in the federal procurement process. The FAR is one of the typical starting points for analysis of many of the common federal government contract law issues the average practitioner will see.

In analyzing a specific issue, the practitioner should be sure to consult the FAR supplements for the particular agency and even sub-agency involved. For example, if the issue involves the Department of the Army, the practitioner should consult not only the FAR but also the Department of Defense Supplement to the FAR (called the DFARS). ⁹⁰⁶

The above is only a brief, simplified discussion of primary sources of authority for federal government contract law. Issues can arise regarding the applicability of various sources of authority. For example, neither the Federal Aviation Administration (FAA) nor Congress is currently subject to the Federal Property and Administrative Services Act or to the FAR. ⁹⁰⁷ Also, contracting by a Nonappropriated Fund Instrumentality, for example the Army and Air Force Exchange System (which runs military post and base exchanges), is not subject to the FAR. ⁹⁰⁸ Accordingly, the practitioner must exercise care to determine the particular federal entity involved and the laws and regulations that apply to contracting with it.

C. Contract Formation in the Federal Sector.

1. In General. Federal law generally requires federal agencies to seek "full and open competition," which means that all responsible sources are permitted to compete for award of the contract in question. ⁹⁰⁹ Competitive procedures used to achieve full and open competition include (i) sealed bids; (ii) competitive proposals; (iii) some combination of competitive procedures (such as two-step sealed bidding); and (iv) "other competitive

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procedures," used for procuring specialized services such as architect-engineer services and basic research and development. ⁹¹⁰ Sealed bidding, the most straightforward of these procedures, is used where price and price-related factors are the only consideration for award. Sealed bidding must be used if (i) time permits; (ii) the contract award will be based on price and other price-related factors; (iii) discussions with bidders about their bids are unnecessary; and (iv) there is a reasonable expectation of receiving more than one sealed bid. ⁹¹¹

Most federal procurements today are conducted using competitive proposals or a combination of competitive procedures; these procurements are generally referred to as "negotiated" procurements. In negotiated procurements, written proposals are solicited and agencies (i) are permitted to engage in discussions with the offerors; (ii) may request or permit revisions to the proposals; and (iii) are allowed to make award to other than the lowest-priced offerors based on an evaluation of factors other than price. ⁹¹²

Federal agencies are also permitted to use full and open competitive procedures after first excluding certain sources, such as when it is necessary to establish or maintain an alternative source or where a socioeconomic program (typically involving preferences for small or small-disadvantaged businesses) permits exclusion of a particular type of source such as a large business. ⁹¹³ Agencies may use "other than full and open competition"— namely, they can avoid the requirement of full and open competition—in certain narrowly defined circumstances, such as (i) where national security considerations require use of a particular source, (ii) where only one source is available, or (iii) where an international agreement requires procurement from a particular source. ⁹¹⁴

2. Responsiveness and Responsibility. By law, the federal government may only award contracts to "responsible" bidders and offerors. The FAR defines a responsible contractor as one who

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1.	Has adequate financial resources to perform, or the ability to obtain them;
2.	Is able to comply with the delivery schedule, taking into consideration all existing business commitments;
3.	Has a satisfactory record of performance;
4.	Has a satisfactory record of integrity and business ethics;
5.	Has the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them, to perform the contract;
6.	Has the necessary production, construction, and technical equipment and facilities, or the ability to obtain them; and
7.	Is otherwise qualified and

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